From the past few years, you must have come across the term “Cryptocurrency” or “Bitcoin” on which your brain must have released its horses to know about what type of currency is this? This new form of digital transaction system is quite secure and does not need any kind of third-party (Banks) between the sender and receiver.
The word “crypto” means secret and in technology terms, it simply means that it has one or more than one encryption algorithms and cryptographic techniques that safeguard your entities. A cryptocurrency is a secure form of digital currency system which works on the blockchain technology. It is the most secure transaction system because it encrypts the sender’s transaction details while sending through the internet until it reaches the receiver’s and then it decrypts the transaction details to the receiver. Every transaction consists of the sender’s and receiver’s public key (address) and the number of coins transferred and also the sender has to digitally sign with their private key to complete the transaction.
Miners of Cryptocurrencies
Taking the example of bitcoin, it consists of a network of peers in which every peer has all the record of the transactions which enables to look at the balance of all the accounts. Every transaction is a file that has to signed by the sender’s private key. After transaction signing with the private key, the transaction is broadcasted on the network which is sent by one peer to every other peer. When the sender request for a transaction, the whole network gets to know about it but it cannot get initiated until it gets confirmed. After getting confirmation, it is stoned and cannot be forged. The confirmations of the transactions are done by miners.
Anyone can become a Bitcoin miner. Miners are the one who stops transaction forging after it gets confirmed. Since there is no legal authority looking into it, so, bitcoin had a high risk of getting abused. Bitcoin founder set a certain rule that the miner needs to invest some of their computers work to get into mining the Bitcoin. Bitcoin uses SHA 256 Hash algorithm which is an encryption technique used for the transactions. SHA 256 Hash algorithms are also used as a cryptologic puzzle to compete to solve by the miners. After solving, the miner needs to build a block and add it to the blockchain. For this task, the miners get some Bitcoin in return.
Properties of Cryptocurrency
- Irreversible – The transaction cannot be reversed in any case once it gets confirmed by the miner.
- Pseudonymous – Nothing is connected as your real-world identity. You receive bitcoins as 30 character addresses and you cannot link your real-world identities to the address.
- Fast – Transaction details are surfed nearly instantly on the global network and it gets confirmed in a couple of minutes.
- Secure – These funds are encrypted in a cryptographic system in which only the owner of the private key can send the cryptocurrency. It has the most secure encryption algorithms.
- Permissionless – You don’t need a permit of any third-party authority to make the transactions. It can be done anywhere and anytime you need it.
Several cryptocurrencies are available on the internet like Bitcoin, Litecoin, Ether, etc. in which Bitcoin is the most popular and the most expensive right now on the internet. The Bitcoin has a value of 9000 USD that means 1 Bitcoin equals 9000 USD (Approx.), which is a huge amount.
Bitcoin was launched in 2009 by Satoshi Nakamoto. He described Bitcoin as a ‘Peer-to-Peer electronic cash system’ in which there are no servers involved or no central controlling authority. Bitcoin transactions are done and confirmed by the “miners” who solve a cryptographic puzzle and confirm the transaction between the users for which he gets rewarded. Bitcoin is set to have 21 Million of its entities, not more than that.
Where you can use cryptocurrencies
There are several merchants out there in the world who accept cryptocurrencies as a form of payment for buying goods. However, it was very difficult to find a merchant who accepts cryptocurrencies as payment in the past but now things have changed. The range of merchants varies from big online stores to your local shops, bars, restaurants, etc. You can pay bitcoin to book hotel rooms, flights, etc. The cryptocurrencies other than bitcoin aren’t accepted as payments yet but the things are changing quickly and we are about to see most of the cryptocurrencies as payment methods.
Cryptocurrencies are the new pick for the investors in which they are taking a keen interest. You must have heard of the people who became a millionaire overnight through Bitcoin investments. After Bitcoin, Ethereum is the next most valued cryptocurrency present in the market with about 1 Ethereum = 232 USD. Cryptocurrencies are a high-risk investment because of their volatile nature. The market value of cryptocurrencies tends to fluctuate regularly and the risk of getting outlawed in a jurisdiction are some of the points you need to keep in mind before investing.
How to buy and store Cryptocurrencies
We will be talking about the Bitcoins as buying options for other cryptocurrencies are not that diverse. The bitcoin market has a lot of different options for buying it. There are currently almost 2000 ATMs in around 60 countries from where you buy bitcoins. Other methods of buying Bitcoins are Gift cards, investment trust, Face to face trade offers, cryptocurrency exchange, etc.
When it comes to storing a cryptocurrency, technically, you don’t store the unit of it but the private keys that you sign for transactions. So, you have to securely store the private keys where it can’t be hacked or used without your permission. We recommend you secure the private keys in your hardware wallet or external hard drives and not on the internet.
Advantages and Disadvantages of Cryptocurrencies
- You do not require any bank or credit card company to transfer funds.
- Secure encryption algorithms are used for the safety of the transactions.
- You have to pay a very minimal transaction fee.
- The anonymous nature of cryptocurrencies is easy to fund illegal activities.
- You cannot trace the hacker if he/she hacks into your system and gets the transaction completed. Once gone, it’s gone.
Cryptocurrencies are gaining popularity day by day because of its privacy terms and total control over the units which we can use anytime without the interference of the third-party authorities which restricts our spending limits. With great powers come greater responsibilities, we have to analyze and learn how we should use cryptocurrencies without doing any ill-spending. Cryptocurrencies are the future of digital payments and money system and we hope that we will see a brighter future ahead with it.
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